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Aizenman, Joshua

Works: 448 works in 2,113 publications in 1 language and 14,393 library holdings
Genres: History 
Roles: Author, Other, Editor, Compiler
Classifications: H62.5.U5, 330
Publication Timeline
Publications about Joshua Aizenman
Publications by Joshua Aizenman
Most widely held works by Joshua Aizenman
Managing economic volatility and crises : a practitioner's guide ( Book )
19 editions published between 2005 and 2011 in English and held by 381 libraries worldwide
"Over the past ten years, economic volatility has come into its own after being treated for decades as a secondary phenomenon in the business cycle literature. This book organizes empirical and policy results for economists and development policy practitioners into four parts: basic features, including the impact of volatility on growth and poverty; commodity price volatility; the financial sector's dual role as an absorber and amplifier of shocks; and the management and prevention of macroeconomic crises. The latter section includes a cross-country study, ease studies on Argentina and Russia, and lessons from the debt default episodes of the 1980s and 1990s."--Jacket
Contagion, bank lending spreads, and output fluctuations by Pierre-Richard Agénor( Book )
23 editions published between 1998 and 1999 in English and held by 226 libraries worldwide
A positive historical shock to external spreads can lead to an increase in domestic spreads and a reduction in the cyclical component of output. Shocks to external spreads immediately after the Mexican peso crisis had a sizable effect on movements in output and domestic interest rate spreads in Argentina
Savings and the Terms of Trade under Borrowing Constraints by Pierre-Richard Agénor( file )
26 editions published between 1999 and 2000 in English and Undetermined and held by 205 libraries worldwide
June 2000 - When households face the possibility of borrowing constraints in bad times, favorable movements in the permanent component of the terms of trade may lead to higher rates of private savings. Agénor and Aizenman examine the extent to which permanent terms-of-trade shocks have an asymmetric effect on private savings. Using a simple three-period model, they show that if households expect to face binding constraints on borrowing in bad states of nature (when the economy is in a long trough rather than a sharp peak), savings rates will respond asymmetrically to favorable movements in the permanent component of the terms of trade-in contrast with the predictions of conventional consumption-smoothing models. They test for asymmetric effects of terms-of-trade disturbances using an econometric model that controls for various standard determinants of private savings. The results-based on panel data for nonoil commodity exporters of Sub-Saharan Africa for 1980-96 (a group of countries for which movements in the terms of trade have traditionally represented a key source of macroeconomic shocks)-indicate that increases in the permanent component of the terms of trade (measured using three alternative filtering techniques) indeed tend to be associated with higher rates of private savings. This paper is a product of Economic Policy and Poverty Reduction, World Bank Institute. Pierre-Richard Agénor may be contacted at
Financial sector inefficiencies and coordination failures : implications for crisis management by Pierre-Richard Agénor( Book )
19 editions published in 1999 in English and held by 180 libraries worldwide
In a country where financial intermediation is highly inefficient (with the enforcement costs of loan contracts very high, for example), or in one experiencing great volatility and large adverse shocks in output, the likelihood of an inefficient equilibrium is great. In East Asia it may be in the interests of both debtors and creditors to collectively reduce the face value of debt, to reduce inefficiencies in the financial sector
Financial versus monetary mercantilism-long-run view of large international reserves hoarding by Joshua Aizenman( file )
24 editions published between 2006 and 2007 in English and held by 171 libraries worldwide
The sizable hoarding of international reserves by several East Asian countries has been frequently attributed to a modern version of monetary mercantilism-hoarding international reserves in order to improve competitiveness. From a long-run perspective, manufacturing exporters in East Asia adopted financial mercantilism-subsidizing the cost of capital- during decades of high growth. They switched to hoarding large international reserves when growth faltered, making it harder to disentangle the monetary mercantilism from a precautionary response to the heritage of past financial mercantilism. Monetary mercantilism also lowers the cost of hoarding through its short-term boost to external competitiveness, but may be associated with negative externalities leading to competitive hoarding
The credit crunch in East Asia : what can bank excess liquid assets tell us? by Pierre-Richard Agénor( Book )
22 editions published between 1999 and 2000 in English and held by 165 libraries worldwide
A two-step approach is used to assess the extent to which the credit crunch in East Asia was supply- or demand-driven. The results for Thailand suggest that the contraction in bank lending that accompanied the crisis was the result of supply factors
Contagion and volatility with imperfect credit markets by Pierre-Richard Agénor( Book )
23 editions published in 1997 in English and held by 160 libraries worldwide
This paper interprets contagion effects as a perceived increase (triggered by events occurring elsewhere) in the volatility of aggregate shocks impinging on the domestic economy. The implications of this approach are analyzed in a model with two types of credit market imperfections: domestic banks borrow at a premium on world capital markets, and domestic producers (whose demand for credit results from working capital needs) borrow at a premium from domestic banks which possess comparative advantage in monitoring the behavior of domestic agents. Financial intermediation spreads are shown to be determined by a markup that compensates for the expected cost of contract enforcement and state verification and for the expected revenue lost in adverse states of nature. Higher volatility of producers' productivity shocks increases both financial spreads and the producers' cost of capital, resulting in lower employment and higher incidence of default. The welfare effects of volatility are non-linear. Higher volatility does not impose any welfare cost for countries characterized by relatively low volatility and efficient financial intermediation. The adverse welfare effects are large (small) for countries that are at the threshold of full integration with international capital markets (close to financial autarky), that is, countries characterized by a relatively low (high) probability of default
Volatility and the welfare costs of financial market integration by Pierre-Richard Agénor( Book )
17 editions published in 1998 in English and held by 154 libraries worldwide
This paper examines the effect of volatility on the costs and benefits of financial market integration. The basic framework combines the costly state verification model and the contract enforceability approach. The welfare effects of financial market integration are assessed by comparing welfare under financial autarky and financial openness -- under which foreign banks, characterized by lower costs of intermediation and a lower markup rate, have free access to domestic capital markets. The analysis shows that financial integration may be welfare reducing if world interest rates under openness are highly volatile. The basic framework is then extended to consider the case of an upward-sloping domestic supply curve of funds and congestion externalities. It is shown, in particular, that opening the economy to unrestricted inflows of capital may magnify the welfare cost of existing distortions, such as congestion externalities or deposit insurance
International reserves : precautionary versus mercantilist views, theory and evidence by Joshua Aizenman( file )
16 editions published in 2005 in English and held by 146 libraries worldwide
This paper tests the importance of precautionary and mercantilist motives in accounting for the hoarding of international reserves by developing countries, and provides a model that quantifies the welfare gains from optimal management of international reserves. While the variables associated with the mercantilist motive are statistically significant, their economic importance in accounting for reserve hoarding is close to zero and is dwarfed by other variables. Overall, the empirical results are in line with the precautionary demand. The effects of financial crises have been localized, increasing reserve hoarding in the aftermath of crises mostly in countries located in the affected region, but not in other regions. We also investigate the micro foundation of precautionary demand, extending Diamond and Dybvig (1983)'s model to an open, emerging market economy where banks finance long-term projects with short-term deposits. We identify circumstances that lead to large precautionary demand for international reserves, providing self-insurance against the adverse output effects of sudden stop and capital flight shocks. This would be the case if premature liquidation of long-term projects is costly, and the economy is de-facto integrated with the global financial system, hence sudden stops and capital flight may reduce deposits sharply. We show that the welfare gain from the optimal management of international reserves is of a first-order magnitude, reducing the welfare cost of liquidity shocks from a first-order to a second-order magnitude
Macroeconomic adjustment with segmented labor markets by Pierre-Richard Agénor( Book )
17 editions published in 1994 in English and held by 137 libraries worldwide
This paper analyzes the macroeconomic effects of fiscal and labor market policies in a small open developing country. The basic framework considers an economy with a large informal production sector and a heterogeneous work force. The labor market is segmented as a result of efficiency considerations and minimum wage laws. The basic model is then extended to account for unemployment benefits, income taxation, and imperfect labor mobility across sectors. Under the assumption of perfect labor mobility, we show that a permanent reduction in government spending on nontraded goods leads in the long run to a depreciation of the real exchange rate, a fall in the market-clearing wage for unskilled labor, an increase in output of traded goods, and a lower stock of net foreign assets. A permanent reduction in the minimum wage for unskilled workers improves competitiveness, and expands the formal sector at the expense of the informal sector. Hence, in a two-sector economy in which the minimum wage is enforced only in the formal sector and wages in one segment of the labor market are competitively determined, efficiency wage considerations do not alter the standard neoclassical presumption. A reduction in unemployment benefits is also shown to have a positive effect on output of tradable goods by lowering both the level of efficiency wages and the employment rent of skilled workers
Exchange rate flexibility, volatility, and the patterns of domestic and foreign direct investment by Joshua Aizenman( Book )
17 editions published between 1992 and 1993 in English and held by 127 libraries worldwide
This paper investigates the factors determining the impact of exchange rate regimes on the behavior of domestic investment and foreign direct investment (FDI). Producers may diversify internationally in order to increase the flexibility of production. We characterize the possible equilibria in a macro model that allows for the presence of a short-run Phillips curve. It is shown that a fixed exchange rate regime is more conductive to FDI relative to a flexible exchange rate, and this conclusion applies for both real and nominal shocks. If the dominant shocks are nominal (real) we will observe a negative (a positive) correlation between exchange rate volatility and the level of investment
Determinants of financial stress and recovery during the Great Recession by Joshua Aizenman( file )
12 editions published between 2010 and 2011 in English and held by 126 libraries worldwide
In this paper, we explore the link between stress in the domestic financial sector and the capital flight faced by countries in the 2008-9 global crisis. Both the timing of emergence of internal financial stress in developing economies, and the size of the peak-trough declines in the stock price indices was comparable to that in high income countries, indicating that there was no decoupling, even before Lehman Brothers' demise. Deleveraging of OECD positions seemed to dominate the patterns of capital flows during the crisis. While high income countries on average saw net capital inflows and net portfolio inflows during the crisis quarters, compared to net outflows for developing economies, the indicators of banking sector stress were higher for high income economies on average than for developing economies. Internal and external distress during crisis was closely interlinked with common underlying causes of both the severity of stress during the crisis and the recovery. External vulnerabilities were important in both phases, and higher international reserves did not insulate countries from stress
Privatization in emerging markets by Joshua Aizenman( Book )
13 editions published in 1998 in English and held by 124 libraries worldwide
This paper evaluates the welfare implications of privatization in emerging market economies, in countries where policies are determined by the median voter. We show that privatization may lead to large efficiency gains by changing the menu of taxes. We illustrate this point with two examples. First, we consider privatization of import competing public enterprises. Reducing the public sector involvement in import competing activities is shown to lower the public sector's benefits from protection, reducing thereby the equilibrium tariff rate. The second example deals with social security privatization in an economy characterized by imperfect capital mobility, where the private sector may engage in capital flight. A small share of the capital owned by the middle class implies that the median voter would impose a tax on capital income that exceeds the efficient tax by a large margin, reflecting the beggar my (capitalist) neighbor' attitude. Social security privatization increases the equity position of the middle class, inducing the median voter to internalize a higher fraction of the costs of high taxes on capital, thereby reducing the capital tax rate. The indirect effects of privatization described in the paper are external to the privatized activity. Hence, these benefits are not accounted for in a conventional cost benefit assessment of the privatized projects. Our examples illustrate that ignoring these effects may lead one to underestimate the potential gains of privatization
Financial sector inefficiencies and the debt Laffer curve by Pierre-Richard Agénor( file )
9 editions published between 2002 and 2009 in English and Undetermined and held by 116 libraries worldwide
Agénor and Aizenman analyze the implications of inefficient financial intermediation for debt management using a model in which firms rely on bank credit to finance their working capital needs and lenders face high state verification and enforcement costs of loan contracts. Their analysis shows that lower expected productivity, higher contract enforcement and verification costs, or higher volatility of productivity shocks may shift the economy to the wrong side of the debt Laffer curve, with potentially sizable output and welfare losses. The main implication of this analysis is that debt relief may generate little welfare gains unless it is accompanied by reforms aimed at reducing financial sector inefficiencies. This paper--a product of the Economic Policy and Poverty Reduction Division, World Bank Institute--is part of a larger effort in the institute to understand the macroeconomic effects of financial sector inefficiencies. Pierre-Richard Agénor may be contacted at
Optimal tax and debt policy with endogenously imperfect creditworthiness by Joshua Aizenman( Book )
12 editions published in 1996 in English and held by 111 libraries worldwide
This paper shows that the patterns of optimal tax rates and borrowing in the presence of endogenous borrowing constraints differ considerably from the patterns observed with fully integrated capital markets. We study a developing country characterized by a costly tax collection. Its access to the international credit market is determined by the efficiency of the tax system and the relative bargaining power of creditors. Partial defaults induce a burden shifting' from bad to good states of nature, reducing the cost of borrowing, implying that a switch from no default to a partial default regime is associated with a borrowing boom. The switch to a partial default regime is associated with financial fragility, where small adverse changes in fundamentals lead to a large accumulation of debt. The tax rate exhibits strong counter-cyclical patterns in economies operating at the credit ceiling, whereas the tax rate exhibits strong pro-cyclical patterns in economies operating on the upward sloping portion of the supply of credit, where the risk premium is positive, and very little cyclical patterns in economies operating on the elastic portion of the supply of credit. We identify a volatility- debt curve for a given realization of output. With low debt, higher volatility tends to reduce borrowing. When volatility reaches a threshold, we observe a switch from a no default to a partial default regime, where a further rise in volatility increases borrowing and reduces present taxes
Volatility and financial intermediation by Joshua Aizenman( Book )
12 editions published in 1997 in English and held by 110 libraries worldwide
Following the Tequila period, its after-effects in Latin America and recent events in South East Asia, the effect of volatility on emerging market economies has become an important topic of research with the domestic financial intermediation process being advanced as one of the most important transmission mechanisms. At the same time there has been continued interest in issues related to imperfect information and rationing in credit markets. In this paper, we consider an economy where risk neutral banks provide intermediation services and risk neutral producers demand credit to finance their working capital needs. Our model blends costly state verification with imperfect enforcement power and, in this context of costly financial intermediation, we show that a weak legal system combined with high information verification costs leads to large, first-order effects of volatility on production, employment and welfare. A calibration illustrates that the semi-elasticity of welfare with respect to volatility is less than -1 for reasonable parameter values (i.e., a one percent increase in the coefficient of variation of productivity shocks would reduce welfare by more than one percent). We suggest that legal and information problems in the credit market may then be at the heart of the reason why volatility has profound effects on emerging market economies
Capital mobility in a second best world : moral hazard with costly financial intermediation by Joshua Aizenman( Book )
15 editions published between 1998 and 2001 in English and held by 109 libraries worldwide
This paper studies the welfare effects of financial integration in the presence of moral hazard. Entrepreneurs face a trade off between risk and return. Banks may mitigate the resultant excessive risk by costly monitoring, where greater risk reduction requires more resources devoted to risk supervision. Hence, the excessive risk associated with moral hazard is endogenously determined. We show that a drop in banks' cost of funds increases the risk tolerated by banks in a competitive equilibrium. Similarly, less efficient intermediation technology (i.e. more costly risk monitoring), higher macroeconomic volatility, and a more generous deposit insurance all raise the riskiness of projects in a competitive equilibrium. Overborrowing would arise e insurance in circumstances where the cost of financial intermediation is relatively high, the banks' cost of funds is relatively low, and macroeconomic volatility is high. With relative scarcity of funds, financial integration is welfare reducing (enhancing) if the financial intermediation is relatively inefficient (efficient). The association between financial integration and welfare may be non-monotonic. For a large enough cost of financial intermediation, the dependence of welfare on the banks' cost of funds has an inverted U shape. For such an economy, financial integration and reforming the banking sector are complimentary policies, as the gain of each reform is magnified by the second. If one starts with a highly inefficient banking system, reforming it and improving its operation is a precondition for s
Resource allocation during the transition to a market economy : policy implications of supply bottlenecks and adjustment costs by Joshua Aizenman( Book )
21 editions published in 1993 in English and held by 108 libraries worldwide
The paper discusses the case against a laissez faire approach to resource allocation and develops a model of supply bottlenecks. It argues that: (1) once budget constraints are hardened and credit markets begin to function appropriately, externalities associated with production bottlenecks and adjustment costs--other considerations aside--provide a case for subsidizing the costs of critical inputs for the state sector but not the new private sector; (2) the optimal subsidy declines as the private sector grows; and (3) the subsidy should be "financed" by taxing wage income in the state sector, which will strengthen incentives for workers to move
International portfolio diversification with generalized expected utility preferences by Joshua Aizenman( Book )
12 editions published in 1997 in English and held by 106 libraries worldwide
This paper revisits the Home Bias Puzzle -- the relatively low interna- tional diversification of portfolios. We suggest that part of the diversifi- cation puzzle may be due to reliance on the conventional CAPM model as the benchmark predicting patterns of diversification. We compare the asset diver- sification patterns of agents who maximize a generalized expected utility (GEU) to the diversification of agents who maximize the conventional expected utility (EU). Specifically, we derive the patterns of diversification for agents who maximize a rank-dependent' expected utility, attaching more weight to bad' than to good' outcomes, in contrast to the probability weights used in a conventional expected utility maximization. We show that agents who maximize a GEU exhibit first order risk aversion and tend to refrain from di- versification in contrast to the diversification of agents who maximize the EU. For a given covariance structure we identify a `cone of diversifica- tion -- the range of domestic and foreign yields leading to a positive demand for both equities. Greater downside risk aversion increases the threshold of yields leading to diversification, shifting the cone of diversification upwards and rightwards. Thus, greater downsiderisk aversion narrows the range of foreign yields leading to diversification for a given domestic yield. Ceteris paribus, greater downside risk aversion reduces the feasible hetero- geneity of normalized excess yields associated with diversification. Conse- quently, we argue that first order risk aversion should be added to the explanatory factors that account for the observed diversification patterns
Why is inflation skewed? : a debt and volatility story by Joshua Aizenman( Book )
12 editions published in 1994 in English and held by 105 libraries worldwide
Abstract: This paper studies the patterns of inflation skewness in 56 countries. Monthly data suggests that inflation is positively skewed. We investigate linkages between skewness and non-linearity, showing that concavity (convexity) will lead to negative (positive) skewness if the independent variable is symmetrically distributed. We construct a public finance model for a developing country that uses inflation tax and external borrowing as the residual means for fiscal financing. The model predicts a convex dependency of inflation on output, where inflation skewness depends positively on inflation volatility, and external debt difficulties magnify the skewness. We conclude the paper with an assessment of the patterns of inflation between 1979-1993 for the 56 countries. Overall, the patterns are consistent with the predictions of the model
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Alternative Names
Aizenman, J.
Aizenman, J. 1949-
Aizenman, J. (Joshua)
Joshua Aizenman Israeli-American economist
English (339)
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